How are lease obligations reported according to GASB and FASAB?

Lease obligations are reported as liabilities under both GASB (Governmental Accounting Standards Board) for state and local governments and FASAB (Federal Accounting Standards Advisory Board) for federal entities. This classification reflects the obligation incurred by the lessee to make future lease payments, representing a liability on the balance sheet.

When an organization enters into a lease agreement, it commits to making payments over the lease term. These future payment obligations are considered liabilities because they represent a future economic sacrifice that the organization will need to make to fulfill its contractual obligations.

In addition to being recorded as liabilities, lease obligations may also require recognition of right-of-use assets, showing the benefit derived from the leased property. However, the key point is that the obligation itself—the commitment to make the lease payments—is recognized as a liability.

This approach aligns with the overall aim of governmental accounting standards to provide a clear and transparent picture of an entity's financial obligations and resources, aiding in accountability and decision-making.